September 28, 2012

Um, About That Medical Device Tax...

Even as support for the Affordable Care Act builds and its prospects solidify with Barack Obama’s improving reelection odds, a movement has been growing to attack one key element of the law: a 2.3 percent tax on medical devices that will provide $29 billion for the first 10 years of the law. The logic behind the tax was simple: expanding coverage to 30 million new people will bring new business to medical device makers, as it would to insurers, hospitals and drug companies, and so device makers, like those other sectors, would chip in for a share of the cost. Hardly had Obama’s signature dried, though, than medical device makers started agitating against the tax, saying it would force layoffs and undermine innovation. The industry got back-up not only from Republicans but also from some ardent Obamacare supports from states with many device makers—notably Minnesota, where both Al Franken and Amy Klobuchar are pushing to do away with the tax. A few weeks ago I wrote about another liberal Democrat who has joined forces with Republicans on this score: Elizabeth Warren, who, after attacks from Scott Brown over the tax’s impact on Massachusetts device makers, quietly came out against the tax, a move she does not really like to be questioned about.

And today comes yet another Democrat who supported the Affordable Care Act arguing against the tax: Evan Bayh, who voted for the law in his last year in the Senate, has a big op-ed in the Wall Street Journal arguing that the tax is a giant mistake. As Jon Chait notes, his second thoughts on the matter may just have something to do with the fact that Bayh now works for the D.C. lobbying/law firm McGuire Woods, which, as the tag line to Bayh’s piece notes, “represents several medical-device companies.” Chait also notes that an editorial by Bloomberg View—hardly a populist bastion—persuasively argued a few months ago that the claims against the tax were bogus. The editorial knocks down one of Bayh’s central arguments—that the new law won’t bring any new business to device makers because most people who need devices are already covered by Medicare, Medicaid or private insurance. This fails basic common sense, argues Bloomberg View—of course expanding coverage to more than 30 million new people is going to mean demand for services and products from people who would not have thought to get them before: “...The expansion of health coverage will increase the number of elective medical procedures performed on those who were previously uninsured and, in turn, their purchase of medical devices. They might not buy artificial hips; they almost certainly will require tests, scans and outpatient surgery.”

To this, I would just add this: in reporting my piece on Warren, I heard convincing arguments in favor of the tax from ... several executives of medical device making firms in Massachusetts! Bob DeAngelis, an executive with Katahdin, told me that he had no problem with the tax and didn’t see it having much impact on his 150-person firm. “I’m not terribly upset we’re going to have a tax on medical devices. I think it’s overblown,” he said. “Scott Brown says we ‘shouldn’t be taxing the job creators.’ That sounds great but what does that mean. He’s not talking about me. I’m going to hire based on people buying my product.”

Even more outspoken was Michael Boyle, the founder of a 55-person firm outside Boston, SDI Diagnostics. “I’m never in favor of paying more tax if it can be avoided,” he told me. “However, it really infuriates me when politicians say that people won't hire because they have to pay a tax. If your business is growing and you need people to help sustain the growth you’re going to hire. It’s nothing but political sloganeering to say that a tax like this is a job killer. It’s not a job killer. It would never stop a responsible manager from hiring people when it’s time to grow the business.” He went on: “You bring in millions more people into the health care market and these people are going to use goods and services. My company and every other company, if we operate our business responsibly we are going to share in that. We’re going to give you 10 more in business and take a dollar in taxes, and you mean you won’t hire more people because we’re going to take that one dollar? It makes no sense. It’s nothing but political pandering.”

You mean that small businessmen have a different viewpoint than the lobbyists and politicians who claim to speak for them? Amazing.